Ratio of Debt-to-Income
The ratio of debt to income is a tool lenders use to calculate how much money is available for your monthly home loan payment after all your other recurring debts are met.
How to figure the qualifying ratio
Usually, underwriting for conventional mortgage loans requires a qualifying ratio of 28/36. FHA loans are less strict, requiring a 29/41 ratio.
The first number in a qualifying ratio is the maximum amount (as a percentage) of your gross monthly income that can be applied to housing costs (this includes principal and interest, private mortgage insurance, hazard insurance, taxes, and HOA dues).
The second number is what percent of your gross income every month that can be applied to housing expenses and recurring debt. Recurring debt includes payments on credit cards, vehicle payments, child support, etcetera.
Some example data:
28/36 (Conventional)
- Gross monthly income of $4,500 x .28 = $1,260 can be applied to housing
- Gross monthly income of $4,500 x .36 = $1,620 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $4,500 x .29 = $1,305 can be applied to housing
- Gross monthly income of $4,500 x .41 = $1,845 can be applied to recurring debt plus housing expenses
If you'd like to run your own numbers, please use this Loan Qualification Calculator.
Guidelines Only
Remember these ratios are only guidelines. We will be happy to help you pre-qualify to help you determine how much you can afford.
At AmeriBest Mortgage, we answer questions about qualifying all the time. Give us a call at 3217777277.